Cantillon

Inside the world of business

Loans destined for Nama are likely to get another haircut

PROPERTY VALUERS and auctioneers are having a torrid time trying to value land-banks and half-finished housing estates and office blocks backing delinquent loans destined for the State’s National Asset Management Agency (Nama).

The five financial institutions that are participating in so-called “bad bank” plan have hired valuers to trawl through each and every loan in the €77 billion portfolio before they move to Nama.

The lenders are working through the top 10 borrowers first with detailed valuations and loan files to be passed to Brendan McDonagh and his interim management team at Nama next week.

The lack of any activity or buyers in the property market, even in commercial investment, has made life hell for valuers.

Conscious that they could be exposed to claims for inaccurate valuations, auctioneers are taking much more severe writedowns on loans. They are in the difficult position of facing potential claims from Nama if their valuations are too high and from the financial institutions if they are too low.

Matters are complicated further by the fact that the property market is going through a radical overhaul following the decision of Minister for Justice Dermot Ahern to ban upward-only rent reviews.

Property agent CB Richard Ellis warned that this measure – combined with the effect of the new 80 per cent windfall tax on development property and the recent flooding – was putting further pressure on the current market valuation for loans destined for Nama.

Back in September the Government said that the current market value of the properties backing the loans moving to Nama was €47 billion and that it was paying €7 billion more to take account of their “long-term economic value”.

As banking analysts sharply increase their predictions for the haircuts facing the banks’ Nama loans, the Government’s current market value of €47 billion on the properties may face a sharp revision downwards. Good thing the Minister for Finance said in September that the €54 billion figure was only an estimate before more detailed loan-by-loan valuations.

Greece takes wooden spoon

As hard-pressed taxpayers count the personal cost of the measures announced yesterday by Minister for Finance Brian Lenihan in his Budget speech, perhaps they could spare a thought for the Greeks.

As the Minister was exhorting people to accept the tough decisions that he believes will allow the Irish economy to continue on the road to recovery, the Greeks were coming to terms with the unthinkable prospect of defaulting on their sovereign debt. And to rub salt in their wounds even ahead of the Minister’s Budget speech, Ireland – that other sick boy of the European Union – is being held up as an example of the path the Greeks need to take.

Even before Mr Lenihan’s speech yesterday, one EU official was citing Ireland in media reports as an example of a country that was biting the bullet and making draconian spending cuts, including reducing public sector pay and pensions, to cope with the impact of the financial crisis.

Moreover, Paul Rawkins, senior director at Fitch Ratings, cited the same model. “Ireland is an example of what Greece should be doing, really . . . Ireland continues to address its situation very aggressively.”

In the event, there were very few surprises in Mr Lenihan’s Budget, with most of the really bad news extensively leaked beforehand in an effort to soften up opposition. Market reaction was broadly positive.

And, of course, Mr Lenihan will have the spectre of Greece’s current plight to hold over unions in any reconvening of talks on public sector cutbacks. All in all, a positive outing for the Minister.

Pan Andean cashes out

Lots of Irish exploration stocks have languished in the ha’penny place for years, and given shareholders nothing in return for their investment other than a stick with which to beat directors at their annual general meetings.

There are a few honourable exceptions to this; Tullow is rapidly evolving into a big player thanks mainly to its African interests, while Petroceltic has real prospects of delivering those who have stuck with it.

Yesterday, the Irish-based, London-listed Pan Andean told investors that Canadian player Petrominerales is bidding 15 pence sterling for its Peruvian and Colombian assets, while leaving them with its Bolivian and US licences.

The deal values its holdings in Peru and Colombia at £18 million, and the offer price compares favourably with the company’s opening quote of 12.5 pence on London’s Alternative Investment Market (AIM) yesterday morning.

While its better prospects are the subject of the offer, shareholders will get a pay out and shares in a new unlisted company that will hold its Bolivian and US assets, and which is likely to seek a listing shortly.

Pan Andean’s chairman, the irrepressible John Teeling, expects shareholders to vote in favour of the offer. It would be a surprise if they didn’t.

Today

A host of business groups will host post-Budget briefings today, but the Irish Congress of Trade Unions’ briefing this afternoon will be keenly watched to see the reaction to the cuts in public sector pay. Separately, the Central Statistics Office will release figures for inflation in November.

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